I have entered hobby income and expenses and it appears that the expenses are not being deducted.

[DawnC0 · Accepted solution]

Generally, you can only deduct your hobby expenses up to the amount of your hobby income. If your hobby expenses are more than your hobby income, you have a loss from the activity. You can't deduct the loss from your other income.  

Additionally, hobby expenses are claimed on schedule A, as an itemized deduction.  Hobby expenses may only be deducted up to the amount of the income from the hobby.  And then you can only deduct the amount that's OVER 2% of your AGI.  If you take the Standard Deduction (do not itemize) they will be of no benefit.  You will still show the full amount of the income on line 21.

The only way to deduct the full amount of your hobby expenses is to treat your income as self-employment and report your income on Schedule A, but you have to have an intent to make a profit in order to do this.   See below for more details.

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Generally, a hobby is something done more for enjoyment than to make money. A hobby differs from a business when you're doing it because you like it, not because you want to make a profit.

Some people find that their hobbies can be profitable and turn the hobby into a business. Sometimes it's difficult to tell the difference between a hobby and a true business.

When there is doubt, the IRS and the Tax Court have looked at each case independently. There is often no one single rule that can be relied upon to say that a business is a hobby or a hobby is a business.  See details from the IRS by clicking the link below.

IRS -  Hobby or Business

[Anonymous]

Several online articles indicate that hobby expenses are nondeductible but TurboTax continues to list a field in which expense costs can be listed. What is the intent of that field if hobby expenses are nondeductible?

[Opus 17]

All miscellaneous itemize deductions subject to 2% rule, which includes hobby expenses, were eliminated from the federal tax return with 2018 tax reform. Some states still use the old rules for itemized deductions, so TurboTax still allows you to enter them, and if you would benefit by deducting them on your state tax return, TurboTax will transfer them to your state tax return. They are not federal deductions.

[Hal_Al]

Although hobby "expenses" are no longer deductible, the "cost of goods sold" (COGS)is deductible (not subject to itemizing).  You reduce you reportable income by the COGS. 

Reference: https://philadelphiacpa.com/hobby-losses-tax-loophole/#:~:text=Subtract%20ending%20inventory%20(actu....